Author(s)
Marco Iansiti and Karim R. Lakhani
Source
Harvard Business Review, Vol. 95, No. 1, pp. 118-127, January–February 2017
Summary
Transactional records are important to business, but today’s transactions are often slow and costly. Blockchain will make it possible for businesses to verify transactions cheaply and quickly. Blockchain can provide substitutes for ordinary currency and financial services.
Policy Relevance
Blockchain will transform the economy over the next several decades. Businesses using blockchain can reduce risk by proceeding slowly.
Main Points
- Contracts and transactional records are vital to business, but the tools for managing them have not kept up with the economy’s digital transformation; blockchain could solve this problem.
- Blockchain has five basic elements:
- A database that every party can access and that no single entity controls.
- Peer-to-peer communication through nodes, each of which sends the message to all the others.
- Each blockchain user is identified by a unique 30-plus-character address.
- The records created by blockchain are permanent.
- Blockchain transactions can be programmed.
- Blockchain, introduced in 2008, will transform our economic and social systems, just as the TCP/IP protocols that lead to the creation of the Internet have changed the economy.
- The transfer of ownership of stock from seller to buyer takes weeks, because the parties have no access to each other’s ledgers; blockchain will allow the transfer to be settled in seconds.
- New technologies go through several phases before reaching their full potential; blockchain’s full effect will not be felt for several decades.
- Blockchain-based currencies like bitcoin substitute for money, but few people know what to do with bitcoins.
- Firms are built on contracts between buyers and sellers, but blockchain agreements could replace these contracts, transforming business and employment.
- Companies thinking of using blockchain should begin with applications that can be used by individuals, such as adding a bitcoin payment mechanism; the next step is to use blockchain to facilitate local transactions.
- Financial companies are further along in adopting blockchain than manufacturing companies.